Why Trump's tweaks to tariffs continue to be a 'Twilight Zone' for Detroit's automakers

USA Today

18-05-2025

Why Trump's tweaks to tariffs continue to be a 'Twilight Zone' for Detroit's automakers
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President Trump signs executive order to relieve some auto tariffs
President Donald Trump signed an executive order to relax some auto tariffs, though the industry won't see a total exemption.
Ford CEO Jim Farley states that President Trump's executive orders on auto tariffs offer some relief, but is insufficient to prevent vehicle price increases.
The order provides a temporary reimbursement for tariffs on imported parts, but the offset is significantly less than the total tariff cost.
Automakers express concern over the complexity and potential impact of the tariffs, with some suspending financial guidance.
The morning after President Donald Trump signed an executive order offering automakers what he called "a little bit of help,' on tariffs, Ford CEO Jim Farley took to America's airwaves — speaking from Ford's factory floor in Louisville, Kentucky — to say the president's action clarified some issues around tariffs, but did not go nearly far enough to help automakers keep vehicle prices in check.
"Boy, do we have a lot of work to do with the administration," Farley bluntly told CNN's Erin Burnett on April 30.
Farley said the Dearborn-based automaker has a direct line to the White House and has "worked with (Trump's) team like every day for the last couple of months."
Farley said Ford has teamed up with General Motors CEO Mary Barra and Stellantis leadership in efforts to "figure it out together" on how to convey a key message to Trump: "Affordability of parts is a really big thing for America because we've got to keep the vehicles affordable. Yes, we want to make them like Ford does, in the U.S. But, we also want to make the vehicles affordable that are built in the U.S., and parts are critical for that.'
Farley's comments underscored a certain caution the Detroit automakers assumed as they tried to make sense of Trump's changes to tariffs this week on imported parts and what it means for their bottom line. Industry insiders told the Detroit Free Press that many automakers and suppliers were struggling to understand the complex formula of Trump's executive orders.
Trump's intention was to help automakers that assemble vehicles stateside but who use some imported parts to pay less in tariffs on those parts for two years. That reprieve is to give those automakers time to source the parts domestically. But experts who did the math in Trump's executive order said the offset is not much of a break.
"At the end of the day, if a car was going to go up in price by $5,000 for the tariffs, it now goes up $4,500," Dan Ives, managing director at Wedbush Securities told the Free Press.
Ives wrote in a research note earlier in the day of Trump's latest executive order: "This continues to be a Twilight Zone situation for the entire automaker industry, which continues to be paralyzed further (on) cost increases and uncertainties that will change the paradigm for the U.S. auto industry for years to come if this stays in effect."
'A bit of a relief, but won't cover ... costs'
On April 3, Trump put a 25% tariff — the tax an importer pays on a good when it crosses international borders — on all imported vehicles. His objective was to encourage more U.S. manufacturing. Trump was set to then enact 25% tariffs on all imported parts starting May 3. But given that most vehicles assembled in the United States contain a lot of imported parts, the duties on those parts would run into thousands of dollars per vehicle.
So on April 29, the administration modified its 25% tariffs on foreign auto parts. In a complex formula, the executive order Trump signed will now allow automakers to be reimbursed for those tariffs up to an amount equal to 3.75% of the value of a U.S.-made car for one year. The reimbursement drops to 2.5% of the car's value in a second year, and then is phased out.
The administration said it calculated this reimbursement by applying 25% parts tariff to 15% of the value of a U.S.-assembled vehicle in the first year, equaling 3.75% of the car's value. In the second year, the offset is calculated by applying the 25% tariffs to 10% of the value of a U.S. assembled car, which is 2.5% of the car's value.
"For most automakers, it will provide a bit of relief, but won't cover most of the costs," said Sam Abuelsamid, vice president of market research for Telemetry Insights. "For example, I recently drove a GMC Canyon, assembled in Missouri. It's only 49% US/Canada content. So let's assume 10% Canada, 39% U.S. Then, 25% Mexico and 26% rest of the world. So 61% of this U.S.-made truck is subject to tariffs of which 15% gets a temporary break. The 46% gets the 25%."
Put another way: Ford assembles the F-150 at Dearborn Truck Plant and Kansas City Assembly Plant in Missouri. Abuelsamid said that based on the American University's 2024 Made in America Index, the F-150 has 49% non-U.S. content. So a 2025 F-150 XLT, Crew-Cab, 5.0-liter V8 (the V8 engine is made in Windsor), 4WD has sticker price of $56,665, but the dealer invoice is roughly $52,000, Abuelsamid said. So 49% of $52,000 is $25,480. A 25% tariff on that comes to: $6,370. The 3.75% kickback on the MSRP is $2,125. That makes the tariff for Ford about $4,245, he said.
Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions noted that Trump's executive orders and a fact sheet put out by the White House seemed to contradict each other, an indication of the uncertainty that continues to reign over the industry, even for leading analysts such as Fiorani.
But based on the executive orders' wording, Fiorani offered this example on a Ford Ranger midsize pickup, built at Michigan Assembly in Wayne. He said about 60% of its parts are imported. In that case, Ford is looking at a tariff bill on those imported parts of about $6,000, Fiorani said. The reimbursement would come to $1,500, putting Ford's net tariff cost at $4,500 for that one vehicle. Now multiply that by 14,913 — that's how many Rangers Ford sold in the states in the first quarter. Tariffs on those vehicles would cost Ford about $67 million in additional costs for one quarter alone.
The Detroit 3 react
The formula is complicated enough that automakers were still digesting it.
During its first-quarter earnings call on April 30, Stellantis said it was suspending its financial guidance for 2025 in the face of 'tariff-related uncertainties.' Similarly, GM postponed its first-quarter earnings call from April 29 to May 1 to absorb the tariff adjustments.
Farley suggested that Ford would be the company to provide Wall Street with some guidance when it reports its first quarter results on May 5 of next week.
"I don't want to preview our earnings, but I will say some basic things," Farley said on CNN. "We know exactly what the tariff bill will look like in terms of costs for the company. We know the offsets. Next week, I think we'll be able to tell people kind of what the tariff bill for Ford would look like."
He said Ford is the best positioned automaker to manage through tariffs because 80% of what it sells in the United States it also assembles here, topping GM and Stellantis, which import more of their vehicles.
Farley on raising prices
But to keep Ford's vehicles competitive and affordable compared with companies that import from Mexico, South Korea or Japan, Farley said, "we have to import certain parts." He noted that parts such as fasteners, washers, carpet and wiring looms are not available in the United States for purchase.
"What we don't know is … what are the import competitors going to do? Are they going to build 10 factories? Are they going to take pricing and pass it on to the customer this summer?" Farley said. "The stuff we built now is (already) priced. If we announce a price increase now, it'll go into play in July or August. So we have to wait until then to see what our competitors do.'
Asked whether Ford would not raise its prices to offset tariffs, Farley said, "I'm not saying that. I'm saying that I'm not going to be specific about our pricing."
But he said Ford is extending its employee pricing for everyone sales event through July 4 rather than ending it on June 2 as was planned when the company announced it on April 3.
"We want to keep our prices competitive and low," Farley said. "We sell some of the highest volume vehicles in America like the F-150, and we think this is an opportunity for Ford, having a different footprint. We have a different exposure to tariffs. That, to us, is an advantage.'
Figuring out how to profits up, prices down
But to Ives, the auto tariffs are bad news all around. He said that in their current form, the tariffs will add up to $100 billion of costs annually to the auto industry. Those costs will essentially get passed directly onto the consumer, raising the average price for a new car. Trump's recent adjustment is "breadcrumbs," Ives said, likely to still push up the cost of new vehicles by $5,000 to $10,000 each.
A way to keep those costs down for car buyers is the "big decision and discussion," that Washington and automakers need to have, Farley told Fox Business Network's Maria Bartiromo on "Mornings with Maria" on April 30.
"Look, you know, we only make 6% margin as a company, maybe 10 on a good day," Farley told Bartiromo. "The 15% of parts we import, a 25% burden on those could basically wipe out half our global profit. So, this is a very big decision by the Trump administration, by the auto companies, even the most American one," referring to Ford.
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Farley said there must be an understanding from Washington on finding the "right balance" between keeping cars affordable and demanding all parts be made in the United States. While that could be done, "it would increase the price a couple thousand dollars. So that's the debate, right there," Farley said.
On CNN, Farley said that as a group, the Detroit automakers "recognize how important this moment is to get this all right and figure it out together. I have to say that the engagement has been very high. Bill Ford's talked to the president a couple times. I know that is typical. We're all trying to figure this out to do the right thing for the country and it's gonna take a little time."
Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at [e-mail]. Follow her on Twitter @jlareauan. To sign up for our autos newsletter. Become a subscriber.